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Fitch: Brexit could lead to all-time lows for mortgage interest rates

Sub-3.3% interest rate coming?

In the wake of the United Kingdom’s shocking decision to leave the European Union, experts throughout the U.S. housing industry weighed in on the potential impact of the Brexit.

The general consensus among those experts is that mortgage interest rates are going down, but just how low?

Well, according to analysts at Fitch Ratings, mortgage rates could hit all-time lows as the Brexit dust settles.

In a note sent to clients on Tuesday, Fitch Managing Director Grant Bailey and Senior Analyst Rob Rowan write that the “increased uncertainty” surrounding the Brexit could drive rates to lows never before seen.

“On Friday, one day after the EU referendum, the benchmark 10-year US Treasury rate fell by roughly 20 basis points to 1.56% as investors sought the safety of government bonds,” Bailey and Rowan write.

“Mortgage rates in the US, currently around 3.5%, are likely to fall further if Treasury yields remain low,” the Fitch analysts continue. “The 30-year fixed-rate US mortgage reached an all-time low of 3.31% in November 2012 when the 10-year Treasury rate stood at 1.65%.”

As others have suggested since the U.K’s decision became final, the Fitch analysts write that the low rates could lead to a surge in refinances.

“The expected dip in mortgage rates will provide incentive for many US homeowners to refinance their outstanding mortgages,” Bailey and Rowan write.

“Mortgage rates for much of 2014 and parts of 2015 were above 4%, meaning many borrowers could refinance to lower their monthly payments or shorten their loan terms,” they continue. “Strong home price growth in recent years also means refinancing could allow borrowers to tap their built-up home equity.”

The Fitch analysts also suggest that the potential for record-breaking lows in interest rates could work to destabilize some housing markets that are already on the brink of a correction.

“Persistently low mortgage rates in recent years have provided strong support for the US housing market,” the Fitch analysts write.

“Since the start of 2012, home prices have increased 30% nationally and more than 50% in California according to the Case-Shiller indices,” the analysts continue.

“However, the rapid growth has outpaced the underlying economic fundamentals in some regions. Fitch estimates major metropolitan statistical areas in California, such as Los Angeles and San Francisco, are 10%-15% overpriced,” the analysts write. “A further drop in mortgage rates could support momentum in these already overheated areas, increasing the risk of a sharp slowdown or price correction in the future.”

While the collected analysts’ thoughts on the Brexit are merely predictions, only one thing is truly certain. No one really knows what’s going to happen.

“Low rates are likely to provide support for mortgage origination volume and the US housing market in the short-term,” the Fitch analysts write, “while longer-term economic implications remain difficult to predict.”

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